How the U.S. and Britain help kleptocracies around the world — and how we pay the price as well

May 13th, 2016

Washington Post/Slate

Correction: This blog post incorrectly suggested that the Beaurepaire Park estate is owned by Yuri Luzhkov. In fact, the sole beneficial owner of the estate is Mr. Luzhkov’s wife, Elena Baturina, according to records provided by an attorney for the couple.

In the village of Bramley, Hampshire, an English country estate is undergoing a major renovation. A large crane can be seen from the road, along with wide lawns and the old trees of an elegant park. Beaurepaire Park was pointed out to me a few weeks ago by locals who told me the surprising name of their new neighbor: Yuri Luzhkov, the former mayor of Moscow.

Fascinated to learn that Luzhkov and his wife, Elena Baturina, Russia’s only female billionaire, had decided to experience English country life, I looked up the house in the British Land Registry. But although the purchase price was there – £5.5 million ($7.9 million) — I found no Russian names. The owner is Skymist Holdings Limited, which is also responsible for the extensive renovation. (Update: See correction above)

I thought of Beaurepaire Park this week, when British Prime Minister David Cameron was overheard telling the Queen that the leaders of two “fantastically corrupt” countries, Nigeria and Afghanistan, were coming to the anti-corruption summit he was holding in London. This “gaffe” was piously reported as somehow insulting, even though when asked, Nigerian President Muhammadu Buhari said Cameron was “telling the truth.” Buhari was too polite to make the obvious rejoinder: If we are going to start calling countries “fantastically corrupt,” then Britain, like the United States, belongs on that list, too.

Not that “corruption” in London takes exactly the same form as it does in Abuja or Kabul. Daily life in Britain does not require the payment of bribes; the court system is widely and justly admired. But over the past couple of decades, London’s accountants and lawyers have helped launder billions of dollars of stolen money through the British Virgin Islands, among other British overseas territories. The British property market — like the New York property market — has long functioned like an old-fashioned Swiss bank, providing safe real estate investments for owners who wish their identities and their sources of income to be hidden. Several U.S. states — most famously Delaware, but also New Mexico, Nevada and Wyoming — make it possible for anonymous owners to register companies with few legal checks, too. Those companies can then go on to do business, or buy property, in places such as rural Hampshire.

Belatedly, things are beginning to change. The Panama Papers leak embarrassed Cameron personally because his late father was listed as having run — legally — an offshore investment fund. In London this week, he announced that Britain would henceforth require the “beneficial owners” of British property to reveal their names in a public register. Last January, U.S. authorities instituted a similar set of rules, starting in Manhattan and Florida’s Miami-Dade County.

But there is still a long way to go, in Reno, the Cayman Islands and Hampshire alike. At base, the problem remains one of perception: Because we don’t see the effects so easily in our own lives, it’s still far too easy to pretend that corruption in Moscow or Alma-Ata, Kazakhstan, is something best explained by the moral weakness of Russians and Kazakhs, not our own. Because there are no “corpses on the street,” as one investigator put it, we treat it as “not our problem.”

Instead we pay the price in other ways. Think of the foreign policy time and foreign aid money we spend fighting poor governance and corruption in other countries. Think of the effort required to cope with the fallout when kleptocratic states — Afghanistan, for example — fail and fall apart, or when, like Russia, they become aggressive and threatening. The world would be safer and richer if we stopped laundering the money that helped create those kleptocracies in the first place. But like addicts or alcoholics, we’ll first need to admit that we have a problem before we can really begin to solve it.